Logistics in period of active consolidation

From acquisitions to mergers to capital investments, the Memphis logistics and transportation market is experiencing a wave of consolidation.

The acquisition that made the most waves recently was that of Memphis-based trucking and intermodal firm Comtrak, Inc., which was bought by The Hub Group, Inc., of Illinois, because The Hub Group wanted to leverage its position in the drayage, or local hauling, market. The $38 million deal was finalized last month after a two-year discussion, says Comtrak president Mike Bruns. If Comtrak, now a subsidiary of Hub, meets 2006 and 2007 projections, founder Bruns will receive an additional $10 million.

With no plans to take the money and retire, now multi-millionaire Bruns is looking for more acquisition opportunities for The Hub Group, he says, declining to reveal specific markets or companies.

"With 23 years of experience, I know who's a good operator," he says.

Some successful operators find themselves on a very fast track toward selling. While most companies make baby steps in their first couple years of operation, the successful Assure Intermodal was purchased for $3 million in January when it was less than four years old. The buyer is yet another big player in the business: Mason Dixon Intermodal, Inc., a subsidiary of the publicly traded Dearborn, Mich.-based Universal Truckload Services, Inc., which up until now had no presence in Memphis.

"It's hard to set up a new company," says Larry Trine, one of the two Assure founders, who's now director of the southwest region for Mason Dixon. "The best way to enter our market is through acquisition. You have the ability to serve both existing and local customers immediately."

Trine had initially wanted to expand Assure Intermodal, but it "was hard to pass on the (acquisition) opportunity," he says.

For others, acquisition is not an option. Through capital investment such companies can maintain control of their business, while acquiring new funds to expand with minimal loss of interest. Katt Worldwide Logistics, one of the largest third-party distribution operations in Memphis, opted for such a venture last month when Transportation Resource Partners invested an undisclosed amount in the company.

In return, the Michigan-based venture capital received a chunk of the company and two seats on its board of directors, says Katt CEO Michael Kattawar Jr. The investment came about after many potential buyers had approached Kattawar about purchasing the company and he refused, he says.

"In the past year I was approached by 150 potential buyers," Kattawar says, "but I wanted to maintain ownership."

Sometimes private equity firms actually acquire companies only to later merge them, as in the case of Priority Solutions International. Michigan-based Distribution Solutions International, whose 127,000-square-foot distribution center is located in Memphis, was merged with its competitor Priority Air Express, after New York-based Arsenal Capital Partners had purchased the two. DSI's Memphis warehouse was "a key component" of the acquisition, says Dan Randall, general manager of the Memphis Priority Solutions distribution center.

The September 2005 merger resulted not only in a new name, Priority Solutions International, but also in a niche powerhouse. Since both companies used to be the leading competitors in the pharmaceutical sample transportation sector before the merger, the new $150 million company capitalized by combining efforts, cutting costs and diversifying clientele, Randall says.

Randall is also president of the Council of Supply Chain Management Professionals for the Mid-South. He says the recent acquisition trend has proven to be an opportunity for organizations to expand quickly through the acquisition of infrastructure and client base.

"They don't need to start from scratch," he says. "Acquisition is a good and efficient way to enter the Memphis market."

Whether it's a merger, acquisition or capital investment, "there is a significant amount of consolidation" in the industry, says logistics expert Cliff Lynch of C. F. Lynch and Associates. And since Memphis is a key logistics hub, companies looking for acquisition opportunities shop in Memphis, he says.

"This is not a new trend, but it has accelerated during the past year and, I believe, will continue to do so," Lynch says.

The consolidation is propelled by firms "trying to enhance their own services or offer other supply chain capabilities," he says.

But companies are also trying to position themselves better in the global economy to compete with foreign companies that buy American companies. A recent example is that of Kuehne + Nagel, a European logistics company that bought American company USCO, which has a 550,000-square-foot facility in Memphis.

Quietly but surely, "foreign companies are running our supply chains," Lynch says. And that's why U.S. logistics companies are working to compete better in the world.

"Many (American companies) don't have the knowledge; they buy companies abroad so they can compete," he says.

"The big will get bigger, but there will always be a need for the smaller, boutique firms," Lynch says. "Some offer unique services not readily available elsewhere; and in some cases some users do not like to deal with the larger providers."

Says Trine, "I don't think small companies will disappear; customers like them and count on them."

Randall says larger companies want the small companies to exist in order to do small shipments.

Until the next big transaction rolls around, one legendary acquisition is bound to remain engraved in the local industry's collective memory -- the acquisition of M.S. Carriers by Swift Transportation in 2001 in a transaction worth more than $350 million.